One of @OctopusVentures team seeking unusually talented entrepreneurs. Based in NYC. Latina, mother, tea-lover.

May 19, 2017

Why you should look beyond SF or NYC when choosing a venture location in the US

Location will be one of the first decisions you make when you decide to set up operations in a different country. While many European entrepreneurs think Silicon Valley, New York or Boston are the hubs where they should be localized, there are a variety of reasons why taking a closer look at other cities in the US might be better for your business.

Photo by John O’Nolan

Are you setting up new headquarters or a subsidiary operation?

Talent considerations are crucial when thinking through location options, and are more constrained if you have decided to relocate your headquarters to the US, since you’ll be sourcing most, if not all, functions in your business at the chosen location. In that scenario, it is critical to consider the talent pool of the geography, as well as the local ecosystem for your sector. For example, New York City is central to finance, media and fashion, while cutting edge AI technical talent is more prevalent in Silicon Valley.

If you are setting up a subsidiary operation, with only some functions present in the new location (i.e. a sales, marketing and customer success outpost), there is greater flexibility in choosing a geography that will balance your talent needs with operational costs.

Many European startups who set up subsidiary New York or Silicon Valley operations later regret their decision, given the high costs, the difficulty of sourcing talent and the high staff turnover in those locations.

Ask yourself these questions and be critical of your assumptions:

Is proximity to our customers necessary for our success?

Are there other strategic partners in our business for whom there’s a valuable proximity benefit? (i.e. business development partners, suppliers, distributors, etc.)

What are the team/workflow repercussions of the time zones we are considering for a new subsidiary location?

Do you have a firm grasp on the costs and regulatory burden of the new location?

Unlike other European geographies where businesses abide by national regulations, the US gives its states autonomy to regulate businesses on a local basis. It is key to have experienced local counsel to evaluate the different regulatory requirements of setting up operations, hiring talent and business reporting across different states. Many Europeans are unaware of the fact that Americans regulate on a federal, estate, county and, in many instances, city level: in many places, you need a specific address to know exactly what your regulatory burden will be, especially in regards to employment law. Specialists such as Payne & Fears can provide guidance on employment and labor law on a local level across the US.

Are you aware of state/government sponsored support for your business in different geographies?

While the regulatory complexity is a downside of operating in a decentralized system such as the United States, one of its benefits is that states find themselves in competition for investment, and have an incentive to attract businesses to their geographies. As such, states will implement a variety of incentive plans to support new businesses, including grants for job creation, job training and facility improvements. Research the jurisdiction’s local economic development agency — in the US, every state and every major city has one. Different layers of government might also have separate, but complementary, programs. Advisors such as the NY Grant Company work with businesses to identify government support that matches their eligibility across the United States.

Do you need capital?

While it is becoming much more common for American venture investors to look beyond the boundaries of California to other parts of the US and the world for their investments (in 2016, for the first time in a decade, the majority of financings by Bay Area investors happened outside of the greater San Francisco area), most venture capital flows to dense and dynamic innovation centers, usually large global cities. Unlike a subsidiary or satellite office, if you will relocate your headquarters, it is important to consider the vitality of the investing ecosystem at your new location.

Other US metro areas worth exploring

There are many options for subsidiary operations across the United States. Hubs such as Chicago, Seattle, Austin, Denver, San Diego, Portland, Atlanta, Minneapolis or Miami offer strong talent and infrastructure. According to research by The Hackett Group, mid-sized metro areas are becoming increasingly attractive for establishing service delivery centers. Their work highlights the advantages of over 30 US mid-sized US locations for setting up a customer service business, including places such as Salt Lake City, UT, a notable industrial, banking and transportation center and the location of a large, bilingual (English and Spanish) population, or Phoenix, AZ, which is home to the customer service centers for American Express, Bank of America and JPMorgan Chase.

A number of Canadian cities also merit a close look, including Toronto and Vancouver, two vibrant technology hubs north of the US border.

Key Factors to consider in location rankings

The table below provides a starting range of possible categories and decision weights in assessing the competitiveness of various locations. Use it as a starting point to your evaluation, but adapt it to the needs and priorities of your operation, according to your answers to questions such as:

What are the new location’s objectives?

Which functions will be at the new location?

Is there a timezone that supports/complements our existing work?

How valuable is proximity to our strategic partners?

Which infrastructure does the new location need? (i.e. proximity to airports, dedicated and secure servers, utility load, etc.)

What is the profile of talent we’ll need?

What are the work-visa requirements for secondments / foreign nationals?

What is the available level of government / state-sponsored support?

What are the salary and benefits expectations of talent in the proposed location?

How robust is the local infrastructure for employees? (i.e. cost of housing, education, public transport, cultural options etc.)

What has been your experience sourcing a new location? What other best practices have you found helpful? Please feel free to comment, or email me or Alliott directly.